Fed Hikes Rates For 3rd Time In 11 Years, Sees Two More Rate Hikes In 2017

For the third time since June 2006, The Federal Reserve has hiked rates by 25bps (as 100% expected). If GDP forecasts for Q1 are correct, this will be the weakest economy since 1987 in which rates were increased.

In fact this could be the lowest since Q4 1980 according to BBG data...

Fed Headlines:

FED RAISES BENCHMARK RATE TO 0.75%-1%; KASHKARI DISSENTS

FED: INFLATION CLOSE TO GOAL, REFERS TO TARGET AS `SYMMETRIC'

MINNEAPOLIS FED'S KASHKARI PREFERRED NO CHANGE IN RATES

RATES:

The target range for fed funds rate raised to 0.75%-1%; decision includes dissent from Minneapolis Fed’s Neel Kashkari, who preferred to keep rates unchanged; previous hike was last December

RATE OUTLOOK:

Deletes the word “only” from expectation that U.S. economy to evolve in way that warrants “only gradual increases” in rates.

Fed continues to say it will keep existing reinvestment policy in place until normalization of fed funds rate “is well under way”; FOMC’s holdings of longer-term securities to stay “at sizable levels”

The key thing going into the FOMC was what happens to the '2018' dot (in the dot plot), and also whether the 'Longer Run' dot will be above 3% - which would be perceived as a very hawkish signal.

MEDIAN FED OFFICIAL FORECASTS TWO MORE RATE HIKES IN 2017

FIVE FED OFFICIALS SEE 4 OR MORE HIKES IN 2017, UNCH. VS DEC.

Simple before and after:

Some more dot details:

2017 median Fed funds 1.4% vs 1.4%

2018 median Fed funds 2.1% vs 2.1%

2019 median Fed funds 3.0% vs 2.9%

Longer run Fed funds median at 3.0% compares to previous forecast of 3.0%

More hawkish.

* * *

It appears that, the worse the economy was doing, the higher the odds of a rate hike.

Putting the Atlanta Fed's forecast in context, 0.9% GDP would mark the weakest quarter since 1987 in which rates were raised, according to Julian Emanuel at UBS.

And since the Fed is hardly raising rates in light of the ongoing slowdown in the economy, one can only assume that the reason for the Fed's hike is to put the breaks on runaway inflation and/or various asset bubbles.

The big question going in was - why is the dollar fading if everything's so hawkishly awesome?

Banks stocks are the biggest winners since The Fed started hiking rates (but that is almost 100% driven since Trump won the election)...

Notably since The Fed first hiked rate in Dec 2015, 30Y yields have risen 14bps and 2Y yields have soared 38bps... (and after each hike, yields have tumbled)

The yield curve has dramatically flattened since The Fed started hiking rates, but that hasn't stopped bank stocks from soaring...

"Many are familiar with the Wall Street adage '3 Steps and a Stumble' popularized by Marty Zweig for the tendency of stocks to sell off after the 3rd Fed rate hike in the cycle," said Nautilus Investment Research's Tom Leveroni and Shourui Tian.

"The S&P 500 has endured significantly below average results from 1 to 12 months after 3rd rate hikes in 11 events back to 1955," they wrote in a note on Tuesday. "Six (more than half) of those hikes occurred within a year of a major cyclical top for stocks (1955, 1965, 1968, 1973, 1980, 1999)."

The only exception was in 2004, when stocks continued to rally for another three years before the Great Recession. "Hikes are generally bad for stocks, somewhat bad for the US dollar, and bullish for 10-year yields and commodities," Leveroni and Tian said.

The banks would need to burn through all of their $2T worth of "excess reserves" (which the Fed pays the the banks .75% to stay on deposit there) before the big banks would need a SINGLE DOLLAR OF YOUR DEPOSITS TO LOAN OUT.

They don't need your deposits any more. Period. Therefore, deposit savings rates will be ZERO for the rest of our lives.

Where is Paul Volker? Now there was a man who could raise rates. Yellen, not so much.

(but think. She can cut rates in the future and claim she saved the nation cause she is only cutting a few basis points. When Volker was done taming inflation he cut in one shot what Yellen moved in her entire lifetime X 10)

Our economy is absolutely dependent on stock prices going up. Trillions in newly created wealth are necessary to fund our government, and make our 401k and pension systems viable. An ever increasing stock market is NOT optional. So they rig 3,000 point rallies out of thin air and everyone is richer. There's more taxes being paid, and retirement accounts are fatter, stoking consumer confidence and consumer spending. That's why stock prices are rigged to go up by our central banks and institutions. There's more than twice as much wealth concentrated in the stock market (30 trillion) than in home equity (14 trillion). You better believe stock prices are completely manipulated.

Well sure, but that's an unsustainable Ponzi by definition. People can't buy groceries with Apple shares, at some point they need to actually sell if they're going to spend the money on anything. But if there was actually any kind of broad-based selling pressure to realize that liquidity the bubble would pop very quickly.

Meanwhile you can't generate long-term stock returns just by multiple expansion, at some point prices have to be supported by earnings/dividends for anyone to be willing to hold them. And these valuations are currently either the worst or 2nd-worst of all time by the best measures (John Hussman has been great on this subject). Spending a million dollars on a machine that spits out $1 per year is only a good deal if you can sell it tomorrow for 2 million; otherwise you're just massively overpaying for a lackluster earnings stream. There is a 100% chance that someone is going to find themselves in that position at these market levels, since ultimately someone has to hold every share stock until it gets retired.

..."until it gets retired." their reasoning is within your last 4 words. What do the boomers (and now their eldest children) care as long as they get theirs, again and again and again and again and again. What happens, for example to housing, when all the boomers die off and their grandkids have 100K just in student debt alone and want a house?

pension bombs

sub auto loan issues

still have a housing issue

and on and on and on... balance act "sit down and shut up, you are drunk and standing at the edge of the roof" - can't remember and can't be bothered

I thought that too, the last two times they raised rates. Yet this calamity continues. I need an honest meditative break....

breathe in strentgh and breathe out bullshit. if your thoughts turn to the three ring shit show of your life, bring your attention back to your breathing, and with each breath feel your body saying, Fuck That. With passive acceptance just allow distracting thoughts to float by...Fuck That.